Buying a HomeA Comprehensive Guide to Purchasing Your First Home in Australia
Purchasing your first home is an exciting milestone, but it can also feel overwhelming if you’re unsure where to begin.
This comprehensive guide will walk you through the essential steps of buying your first home in Australia, ensuring that you navigate the process smoothly and make informed decisions. From assessing your finances to settling on the perfect property, we’ve got you covered.
Table of Contents
Step 1:Assess Your Finances
Before embarking on your home buying journey, it’s crucial to assess your finances thoroughly. This step will help you understand your financial limitations, and make informed decisions about the type of property you can afford. Here are some key aspects to consider:
- Income:
Evaluate your current income and stability. This includes your salary, any additional sources of income, and potential future income growth. A stable and consistent income will give you confidence in your ability to meet mortgage repayments.
- Expenses:
Take a detailed look at your monthly expenses. This includes rent, utilities, groceries, transportation, entertainment, and any outstanding debts or loans. Understanding your expenses will help you determine how much you can comfortably allocate towards mortgage repayments.
- Assets:
Evaluate your savings and assets. The more savings you have, the larger your deposit can be, which will impact your borrowing capacity, loan terms and whether or not you need to pay LMI. Assess your current savings and explore options for boosting your savings, such as cutting unnecessary expenses or considering additional income streams.
- Liabilities:
When assessing your finances it’s essential to consider any existing debts you have, such as credit cards, personal loans, or student loans. These debts can have an impact on your overall financial health and affect your ability to secure a home loan. However, it’s not just about increasing your borrowing capacity but also ensuring your financial well-being.
Step 2:Applicable Grants
As a first home buyer in Australia, you may be eligible for various grants and incentives that can help make homeownership more attainable. These grants are designed to provide financial support and assistance to individuals entering the property market for the first time. These grants are quite substantial, at Serres Property Finance we can assess your eligibility and help you to apply for the grants below:
Federal Grants
First Home Guarantee (Federal Grant):
Formerly known as the First Home Loan Deposit Scheme (FHLDS), this Australian government initiative offers an appealing opportunity for first-time buyers to purchase a home with a deposit as low as 5%, bypassing the need for lenders’ mortgage insurance (LMI). Unlike standard practice where a 20% deposit is typically required to waive LMI, the First Home Guarantee allows eligible buyers with a minimum savings of 5% to secure a loan. This is possible as this scheme has the government underwriting the loan so that borrowers do not have to pay LMI.
Here’s a summary of the key funding information:
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- Renamed as the First Home Guarantee, this scheme aims to provide more opportunities for first home buyers to enter the market.
- From 1 July 2022 to 30 June 2025, the number of placements for the low deposit scheme will increase to 50,000 spots, ensuring greater access for aspiring homeowners.
- After the three-year period, the number of placements will revert to 35,000 per year.
- During this 3-year period, the 50,000 spots will be allocated as follows:
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- 35,000 places per year for the First Home Guarantee, allowing eligible first home buyers to enter the market with a 5% deposit and no Lenders Mortgage Insurance (LMI).
- 5,000 places per year for the newly announced Regional Home Guarantee, enabling eligible home buyers to purchase a new home in a regional location with a 5% deposit and no LMI.
- 10,000 places per year for the Family Home Guarantee, catering to eligible single parents buying a home with a 2% deposit and no LMI.
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How does it work?
To apply for the First Home Guarantee, you’ll need to demonstrate your eligibility and submit an application through one of the participating lenders or authorised representatives like Serres Property Finance. If approved, you can secure a home loan with a lender while the government acts as your guarantor, making it easier to obtain a loan without a 20% deposit requirement.
Typically, if a lender approves a loan with less than a 20% deposit, borrowers are required to pay lenders mortgage insurance (LMI). However, with the government serving as a guarantor, LMI is not necessary, potentially saving you around $10,000. The actual savings may vary depending on loan details. If you had initially planned to save for a 20% deposit, LMI would have been avoided regardless.
Under the scheme, you’ll receive support until your loan balance falls below 80% of your property’s value at purchase. It’s important to note that if you refinance, sell your home, or move out, you’ll no longer be eligible for support. If refinancing and your loan balance remains above 80% of the property value, you may need to pay lenders mortgage insurance with the new lender.
Family Home Guarantee (Federal Grant):
Within this programme, a sole parent with dependents has the opportunity to either construct a new house or acquire a pre-existing one by contributing merely 2% of the property’s price, without the need for Lenders Mortgage Insurance (LMI).
Normally, deposits below 20% attract LMI fees. However, in this programme, when a borrower offers a 2% deposit, the government commits to backing 18% of the loan, thereby allowing the borrower to sidestep LMI charges.
Here’s a summary of the key funding information and eligibility criteria:
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- Your taxable earnings should not surpass $125,000. Income from child support payments isn’t considered within this cap.
- This initiative isn’t exclusively for first-time homeowners; prior homeowners can apply. However, you shouldn’t own any property at the time of applying.
- Only Australian citizens or permanent residents aged 18 or older can apply.
- You must provide at least 2% of the property’s price as a deposit. If your deposit is 20% or greater, you won’t qualify for this initiative.
- Options include constructing a new home, buying an existing property, purchasing a townhouse, an apartment, a house and land package, or acquiring land with a separate contract to erect your house.
- Beginning in financial year 2022-23, the government will provide a total of 15,000 places
How does it work?
The National Housing Finance and Investment Corporation (NHFIC) doesn’t handle direct applications nor keeps a waitlist for spots within the scheme. After applying, your lending institution will inform you if you’ve managed to secure a spot under the Family Home Guarantee.
Every state has price caps for the scheme;
- NSW – Sydney & regional centres – $900,000
- NSW – Rest of state – $750,000
- VIC – Melbourne & Geelong – $800,000
- VIC – Rest of state – $650,000
- QLD – Brisbane, Gold Coast & Sunshine Coast – $700,000
- QLD – Rest of state – $550,000
- WA – Perth – $600,000
- WA – Rest of state – $ 550,000
- SA – Adelaide – $600,000
- SA – Rest of state – $450,000
- TAS – Hobart – $600,000
- TAS – Rest of state – $450,000
- ACT – $750,000
- NT – $600,000
Regional First Home Buyer Support Scheme (Federal):
The Regional First Home Buyer Support Scheme aims to assist 10,000 Australians residing in regional areas in acquiring their first home with a minimum deposit of 5%. The scheme is especially beneficial for those who typically would have to pay Lenders Mortgage Insurance (LMI) when the deposit is under 20%. Thanks to the scheme, potential savings could reach up to $32,000 on LMI. The programme is scheduled to commence in January 2023.
The price caps vary per region, with areas such as Illawarra, Central Coast and Newcastle (NSW) having a cap of $800,000 and potential savings of $31,939. These caps are reviewed bi-annually.
Here’s a summary of the eligibility criteria:
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- Being an Australian citizen or permanent resident over 18.
- Being a first-time home buyer.
- Residing in the region for at least 12 months.
- Intending to live outside a capital city and reside in the purchased property.
- Having a taxable income up to $125,000 for singles or $200,000 for couples.
- Meeting the price criteria set by the existing First Home Guarantee.Types of homes under the scheme:
- Existing homes
- Townhouses
- Units
- House and land combinations
- Off-the-plan flats
- Plots with a building contract.
How does it work?
If a first-home buyer can secure at least a 5% deposit of the property value, the government will provide a guarantee for the next 15%, allowing buyers to bypass the usual LMI charges. This equates to substantial savings, with the exact amount dependent on the property’s location and value. To determine potential savings at different price ranges, one can use an LMI calculator. Once eligible, applicants can select from a range of property types and must ensure their choice falls within the region-specific price caps.
State Specific Grants
Stamp Duty Concession
From 1 July 2019, first home buyers in ACT will no longer have to pay stamp duty on their properties. This concession is applicable to all properties in ACT, including vacant residential land and both new and established homes at any price.
Eligibility Conditions:
- First homeowners in the ACT must have a household income below $160,000. This number increases up to $176,650 depending on the number of children you may have. As this is a household income measurement, your partner’s income must be included, even if they won’t be an owner of the home
- As this is still to aid first home buyers, to be eligible at least one buyer must live in the home for at least 12 months, starting within 12 months of settlement or completion of construction.
First Home Owners Grant (FHOG)
The First Home Owners Grant serves as a valuable financial assistance program offered by state or territory governments to support individuals in purchasing their first home. This grant provides a lump sum of cash to eligible first home owners, aiding them with the financial aspects of buying their first home or acquiring vacant land for construction purposes.
Amount: $10,000.00
Eligibility Conditions:
- To be eligible, your first home must have a total value below $600,000, and be either newly constructed or ‘substantially renovated’*. If you plan to build a new
home from scratch, you can still be eligible as long as your land plus the home you build have a combined value of less than $750,000. - As this is still to aid first home buyers, to be eligible at least one buyer must live in the home for at least 12 months, starting within 12 months of settlement or completion of construction.
- You must be a permanent resident or an Australian citizen. If you’re co-buying with someone else, at least one of you must be a permanent resident or Australian citizen.
- You must not previously have owned or co-owned a home in Australia or have received an Australian First Home Owner Grant in the past.
- You must be buying a home to live in – not as an investment property.
- You must be a natural person (not a company or a trust), and
- You need to be aged over 18.
First Home Buyer Assistance Scheme (FHBAS)
First-time homebuyers are exempt from paying stamp duty on both new and existing homes valued below $650,000, as well as vacant land valued below $350,000. For homes valued between $650,000 and $800,000, and vacant land valued between $350,000 and $450,000, a concessional rate of duty will apply.
First Home Owners Grant (FHOG)
The First Home Owners Grant serves as a valuable financial assistance program offered by state or territory governments to support individuals in purchasing their first home. This grant provides a lump sum of cash to eligible first home owners, aiding them with the financial aspects of buying their first home or acquiring vacant land for construction purposes.
Amount: $10,000.00
Eligibility Conditions:
- Only to be used when building a new house, apartment, duplex or townhouse.
- You will need to live in your first home for at least 6 months within 12 months of purchase.
- You must be a permanent resident or an Australian citizen. If you’re co-buying with someone else, at least one of you must be a permanent resident or Australian citizen.
- You must not have owned residential property in Australia before 1 July 2000.
- You must not have owned residential property on or after 1 July 2000, which you have lived in.
- You must be buying a home to live in – not as an investment property.
- You must be a natural person (not a company or a trust), and
- You need to be aged over 18.
First Home Owners Grant (FHOG)
The First Home Owners Grant serves as a valuable financial assistance program offered by state or territory governments to support individuals in purchasing their first home. This grant provides a lump sum of cash to eligible first home owners, aiding them with the financial aspects of buying their first home or acquiring vacant land for construction purposes.
Amount: $15,000.00
Eligibility Conditions:
- Purchase brand new home or build a home from scratch with the total value (including the land) below $750,000. You may also be eligible if you
buy off the plan or an established home that’s been substantially renovated. - You may still be eligible for the First Home Owner Grant in Queensland if you have owned an investment property as long as you haven’t lived in it.
- As this is still to aid first home buyers, to be eligible at least one buyer must live in the home for at least 6 months, within 12 months of settlement.
- You must be a permanent resident or an Australian citizen. If you’re co-buying with someone else, at least one of you must be a permanent resident or Australian citizen.
- You must not previously have owned or co-owned a home in Australia or have received an Australian First Home Owner Grant in the past.
- You must be buying a home to live in – not as an investment property.
- You must be a natural person (not a company or a trust), and
- You need to be aged over 18.
Stamp Duty Concessions
In Queensland when purchasing vacant land for the purpose of building your first home, you’ll be delighted to know that you won’t have to pay any stamp duty if the price of the block is $400,000 or less. This translates to a remarkable saving of up to $7,175, which is the typical amount of stamp duty fees.
Furthermore, if the value of your first home falls within the range of up to $500,000, you can also enjoy the benefit of paying zero stamp duty. This amounts to an impressive saving of up to $15,925, representing the maximum stamp duty rebate available to first home buyers in Queensland.
Moreover, even if your first home is priced between $500,000 and $550,000, you can still benefit from some savings on stamp duty. For instance, if your first home is valued at $530,000, you would only need to pay $6,300 in stamp duty, resulting in a substantial saving of $3,500.
However, it’s important to note that these savings on stamp duty gradually diminish as the price of your first home exceeds $550,000. In such cases, the full exemption from stamp duty is no longer applicable, and the regular stamp duty rates would be incurred.
First Home Owners Grant (FHOG)
The First Home Owners Grant serves as a valuable financial assistance program offered by state or territory governments to support individuals in purchasing their first home. This grant provides a lump sum of cash to eligible first home owners, aiding them with the financial aspects of buying their first home or acquiring vacant land for construction purposes.
Amount: $15,000.00
Eligibility Conditions:
- Only available when you buy or build a new home. To be eligible, your first home must have a purchase price below $575,000.
home from scratch, you can still be eligible as long as your land plus the home you build have a combined value of less than $750,000. - As this is still to aid first home buyers, to be eligible at least one buyer must live in the home for at least 6 months, starting within 12 months of settlement or completion of construction.
- You must be a permanent resident or an Australian citizen. If you’re co-buying with someone else, at least one of you must be a permanent resident or Australian citizen.
- You must not previously have owned or co-owned a home in Australia after 1 July 2000, which you have lived in for six months or more.
- You must be buying a home to live in – not as an investment property.
- You must be a natural person (not a company or a trust), and
- You need to be aged over 18.
First Home Owners Grant (FHOG)
The First Home Owners Grant serves as a valuable financial assistance program offered by state or territory governments to support individuals in purchasing their first home. This grant provides a lump sum of cash to eligible first home owners, aiding them with the financial aspects of buying their first home or acquiring vacant land for construction purposes.
Amount: $30,000.00
Eligibility Conditions:
- Currently available until 30 June 2022
- Only available when you buy or build a new home. Off the plan purchases are also eligible.
- Buyer must live in the home for at least 6 months, starting within 12 months of settlement or completion of construction.
- You must be a permanent resident or an Australian citizen. If you’re co-buying with someone else, at least one of you must be a permanent resident or Australian citizen.
- You must not previously have owned or co-owned a home in Australia after 1 July 2000, which you have lived in for six months or more.
- You must be buying a home to live in – not as an investment property.
- You must be a natural person (not a company or a trust), and
- You need to be aged over 18.
First Home buyers of established homes duty concession
The concession provides a 50 per cent discount on property transfer duty for first home buyers of an established home.
Eligibility Conditions:
- Must purchase an established home in Tasmania that does not exceed;
- $400 000 or less between 7 February 2018 and 15 March 2021 (inclusive); or
- $500 000 or less between 16 March 2021 and 31 December 2021 (inclusive); or
- $600 000 or less between 1 January 2022 and 30 June 2024 (inclusive);
- must be a natural person (not a company or a trust);
- must be at least 18 years of age*
- must be an Australian citizen or permanent resident – or if there is more than one applicant, at least one of them must meet this criteria
- must not have previously owned a home (or have a spouse/partner who owned a home) in Australia
- must not have received a First Home Owner Grant in any state or territory of Australia or the Duty Concession before (or have a spouse/partner who has)
- must fully complete the application form and lodge with all relevant supporting documentation
- must ensure each person holding a relevant interest in the property is listed on the application form.
- In addition to the above requirements, eligible transferees must occupy the home as their principal place of residence for a continuous period of 6 months commencing within 12 months of purchasing the property.
First Home Owners Grant (FHOG)
The First Home Owners Grant serves as a valuable financial assistance program offered by state or territory governments to support individuals in purchasing their first home. This grant provides a lump sum of cash to eligible first home owners, aiding them with the financial aspects of buying their first home or acquiring vacant land for construction purposes.
Amount: $10,000.00
Eligibility Conditions:
- Purchase brand new home or build a home from scratch with the total value (including the land) below $750,000. It must be a new home – being sold as
a home for the first time, and less than five years old. - You have not previously owned a home or any other residential property in Australia, either jointly or individually, prior to 1 July 2000. However, there are certain circumstances where you may still be eligible for the FHOG. For instance, if you or your spouse/partner owned a property on or after 1 July 2000 but did not use it as your primary residence, you may still meet the eligibility criteria for the grant.
- As this is still to aid first home buyers, to be eligible at least one buyer must live in the home for at least 12 months, within 12 months of settlement.
- You must be a permanent resident or an Australian citizen. If you’re co-buying with someone else, at least one of you must be a permanent resident or Australian citizen.
- You must not previously have owned or co-owned a home in Australia or have received an Australian First Home Owner Grant in the past.
- You must be buying a home to live in – not as an investment property.
- You must be a natural person (not a company or a trust), and
- You need to be aged over 18.
Stamp Duty Concessions
In Victoria, first home owners can enjoy a remarkable benefit where they are completely exempt from paying any stamp duty on their first home, provided that the property’s value remains below $600,000 and they meet the eligibility requirements. This exemption results in substantial savings of up to $31,000!
Additionally, there is still a possibility of obtaining savings on stamp duty if the purchase price of your first home falls within the range of $600,000 to $750,000, subject to meeting the eligibility criteria.
It’s important to note that the stamp duty concessions offered in Victoria apply to both established homes and new homes, allowing first home owners to take advantage of these benefits regardless of the type of property they choose to purchase.
First Home Owners Grant (FHOG)
The First Home Owners Grant serves as a valuable financial assistance program offered by state or territory governments to support individuals in purchasing their first home. This grant provides a lump sum of cash to eligible first home owners, aiding them with the financial aspects of buying their first home or acquiring vacant land for construction purposes.
Amount: $10,000.00
Eligibility Conditions:
- Purchase brand new home or build a home from scratch.
- If you are located south of the 26th parallel, which encompasses the entire Perth metropolitan area, you can claim the FHOG WA if your new home, including the value of both the land and buildings, is valued up to $750,000.
- If you are purchasing or building a home north of the 26th parallel, the property must have a value equal to or below $1 million in order for you to qualify for the grant. These value thresholds play a crucial role in determining your eligibility for the FHOG in Western Australia, ensuring that the grant is accessible to first home buyers across different regions of the state.
- As this is still to aid first home buyers, to be eligible at least one buyer must live in the home for at least 6 months, within 12 months of settlement or building completion.
- You must be a permanent resident or an Australian citizen. If you’re co-buying with someone else, at least one of you must be a permanent resident or Australian citizen.
- You must not previously have owned or co-owned a home in Australia or have received an Australian First Home Owner Grant in the past.
- You must be buying a home to live in – not as an investment property.
- You must be a natural person (not a company or a trust), and
- If you are under 18, you may be able to apply for an exemption from the age requirement.
- Strict rules also apply to any property you may previously have owned. You won’t be eligible for the FHOG WA if:
- You owned residential property anywhere in Australia before 1 July 2000
- You owned residential property anywhere in Australia on or after 1 July 2000, and you lived in the property as your
home before 1 July 2004, or - You owned residential property anywhere in Australia on or after 1 July 2000, and you lived in the property for at
least 6 months on or after 1 July 2004.
Stamp Duty Concessions
When purchasing vacant land with the intention of building your first home, you’ll be delighted to know that you won’t have to pay any stamp duty if the purchase price remains below $300,000. If the price falls within the range of $300,000 to $400,000, you will still be entitled to a reduced rate of duty, providing some additional savings.
Moreover, if you decide to buy a home valued up to $430,000, you’ll be pleased to know that no stamp duty is payable at all. However, for homes valued between $430,000 and $530,000, you’ll still benefit from a reduced rate of stamp duty, helping you save on your overall costs.
It’s important to note that there are no further concessions available for homes valued above $530,000 or land valued above $400,000 in Western Australia. However, it’s worth mentioning that the stamp duty concessions in WA apply to both new and established homes, ensuring that first home buyers can take advantage of these benefits regardless of the type of property they choose to purchase.
Step 3:Typical Purchase Costs
When purchasing a home, there are several costs associated with the transaction that buyers need to consider beyond the purchase price. These costs can vary depending on the specific circumstances of the purchase and the location of the property. Here are some common costs associated with the purchase of real estate:
- Stamp Duty:
Stamp Duty: Stamp duty is a significant cost when buying real estate. It is a state or territory tax imposed on property transfers. The amount of stamp duty payable is typically based on the property’s value or purchase price, and it varies between states and territories. Stamp duty rates can be substantial and should be factored into the overall budget for the purchase.
You can calculate estimated stamp duty on a property here – - Legal Fees:
Engaging a solicitor or conveyancer is essential to ensure a smooth and legally sound property transaction. These professionals handle the legal aspects of the purchase, such as reviewing contracts, conducting searches, and facilitating the settlement process. Their fees can vary depending on the complexity of the transaction and the services provided.
- Building and Pest Inspections:
It’s prudent to arrange building and pest inspections before purchasing a property. These inspections assess the property’s condition and identify any structural or pest-related issues. The cost of these inspections can vary depending on the size and type of property but is a valuable investment to uncover any potential problems.
Step 4:Understanding LMI
Lenders Mortgage Insurance (LMI) is an important consideration when purchasing your first home in Australia, especially if you have a smaller deposit. LMI is a type of insurance that protects the lender in case the borrower defaults on their mortgage repayments. While it primarily safeguards the lender, it allows borrowers with a smaller deposit to access home loans that would otherwise be out of reach.
Here are some key points to understand about LMI:
- When is LMI Required?:
LMI is generally required when the borrower has a deposit of less than 20% of the property’s purchase price. It is important to note that LMI is a one-time premium paid by the borrower, typically added to the loan amount. It is important to note that the 20% deposit threshold assumes that related property purchase costs such as Stamp Duty are not going to be capitalised within the loan.
- Benefits of LMI:
LMI enables borrowers to enter the property market sooner, even if they have a smaller deposit. It can help first home buyers overcome the hurdle of saving a large deposit and fulfill their dream of homeownership. By paying LMI, borrowers can access home loan products that may have otherwise been unavailable to them.
- LMI Costs:
The cost of LMI depends on several factors, including the loan amount, the loan-to-value ratio (LVR), and the borrower’s financial profile. Generally, as the LVR increases, the LMI premium also increases. LMI costs can vary between lenders, so it’s important to compare quotes from different insurers or consult with a mortgage broker who can provide guidance on the best options for your specific circumstances.
- Impact on Borrowers:
It’s essential for borrowers to understand that LMI protects the lender, not the borrower. While it enables borrowers to access home loans with a smaller deposit, it is an additional cost that adds to the overall loan amount and increases the borrower’s monthly repayments. It’s important to consider these factors when assessing the affordability of a home loan.
- LMI and Loan Approval:
LMI plays a role in the loan approval process. Lenders typically require borrowers to meet certain criteria, including a satisfactory credit history and the ability to service the loan. LMI can provide lenders with additional confidence in approving loans with a higher LVR, as it mitigates some of the risk associated with lower deposit amounts.
- LMI Waiver Options:
LMI plays a role in the loan approval process. Lenders typically require borrowers to meet certain criteria, including a satisfactory credit history and the ability to service the loan. LMI can provide lenders with additional confidence in approving loans with a higher LVR, as it mitigates some of the risk associated with lower deposit amounts.
When considering Lenders Mortgage Insurance (LMI), it’s important to weigh the benefits of entering the property market sooner against the additional costs associated with LMI premiums. Each individual’s financial situation and goals are unique, so it’s crucial to seek personalised advice from a mortgage broker who can assess your circumstances and provide an LMI quote tailored to your situation to determine guidance on whether LMI is the right option for you.
Step 5:Saving Your Deposit
Saving for a deposit is an important aspect of this process, as it allows you to secure a loan and make your dream of homeownership a reality. In this section, we will explore some essential strategies and considerations to help you save for a deposit efficiently.
Use a budget:
Creating and following a budget is crucial when saving for a deposit. It enables you to track your expenses, identify areas where you can cut back, and allocate funds towards your savings goal. Start by listing all your income sources and categorizing your expenses. Evaluate your discretionary spending, such as entertainment and dining out, and consider making adjustments to save more.
Separate Account:
Another useful tip is to set up a separate savings account dedicated to your deposit. Automate regular transfers from your main account to this savings account to ensure consistent progress. Seeing your savings grow in a separate account can be highly motivating and help you stay on track.
Understanding Grants that May Help with the Deposit:
Have a read of the grants section above. There are substantial grants which will help with the burden of saving for a deposit.
Understanding additional costs applicable to the purchase of property:
Again as described in the section above doing your homework on these costs is necessary as these are additional costs typically not capitalized into your loan.
To pay LMI or not to pay LMI:
This is a big decision! Consider the information in the section above. Obviously paying LMI cuts down the time it will take to save for a deposit, but does carry a significant cost.
Saving for a deposit is a crucial step in purchasing your first home. By using a budget to manage your finances, understanding the grants available to first home buyers, and being aware of additional property purchase costs, you’ll be better prepared to achieve your savings goal. Keep your eye on the prize, stay committed to your budget, and soon you’ll be on your way to owning your own home.
Step 6:Working Out Your Borrowing Capacity
Once you have completed the steps above you should have a good understand of your situation and will now be able to determine your borrowing capacity. Your borrowing capacity is the amount of money a lender is willing to lend you based on your financial circumstances. This will help you understand the price range of properties you can consider and guide your search for your first home. There is two ways of working out your borrowing capacity:
- Use An Online Calculator:
Many financial institutions provide online borrowing power calculators that can give you an approximate borrowing capacity estimate. These calculators take into account your income, expenses, and other financial commitments to provide a preliminary figure. While these calculators are helpful, it’s important to remember that they only provide a general estimate and may not reflect the exact amount a lender will offer you. You can use our online borrowing capacity calculator here:
- Consult with a Mortgage Broker:
Seeking the assistance of a mortgage broker can be invaluable in determining your borrowing capacity. A mortgage broker has access to a wide range of loan products from various lenders and can analyse your financial situation to provide a more detailed picture of your situation. Feel free to contact us to schedule an appointment to go over your situation.
Step 7:Finding The Right Home
Finding the right home is an exciting and the most important step in your journey. It’s essential to take the time to explore various factors to ensure that the property you choose aligns with your needs, budget, and long-term goals. In this section, we will discuss some key considerations that will help you find the perfect home.
Understanding your borrowing capacity:
Before beginning your search for a home, it’s crucial to determine your borrowing capacity. View the section above and either use our calculator or give us a call for assistance.
Research:
Researching the properties you’re interested in is an essential part of the home-buying process. Take the time to explore different neighbourhoods, considering factors such as proximity to amenities, schools, transportation, and future development plans. Visit open houses, attend inspections, and speak with real estate agents to gather as much information as possible about the properties you’re considering. If you need assistance with a property report feel free to give us a call.
While it’s essential to find a home that suits your immediate needs, it’s also crucial to consider the property’s suitability in the medium to long term.
Ask yourself questions like:
Does the property have enough space to accommodate potential changes in your life, such as starting a family or working from home?
Is the location likely to meet your needs and preferences in the coming years?
Are there any restrictions or limitations associated with the property?
Does the property contain Asbestos or Termites? Conduct a building and pest report
Take your time, explore different options, and trust your instincts. Remember, your first home should be a place where you can envision yourself creating lasting memories and building a bright future.
Step 8:Understanding Different Loan Types
As a first home buyer, understanding the different loan types available to you is essential for making informed decisions and finding the best mortgage option. With a variety of loan types and features to choose from, it’s important to explore each one’s benefits and drawbacks. In this section, we will briefly discuss the main types of home loans in Australia, helping you gain a clearer understanding of your options. This is a brief summary only, it is essential to speak to a mortgage professional in order to ascertain clearly what option is best for you.
Variable Rate Loans:
Variable rate loans are a popular choice among home buyers. With this type of loan, the interest rate can fluctuate over time in response to changes in the official cash rate set by the Reserve Bank of Australia or other market factors. Variable rate loans offer flexibility and often come with features such as redraw facilities or offset accounts.
- Pros of Variable Rate Loans:
- Flexibility: Variable rate loans allow you to make extra repayments, which can help you pay off your loan faster.
- Potential for Rate Reductions: If the official cash rate decreases, your interest rate and monthly repayments may also decrease, potentially saving you money.
Additional Features: Many variable rate loans offer features such as offset accounts or redraw facilities, which can help you reduce interest and access additional funds if needed.
- Cons of Variable Rate Loans:
- Interest Rate Uncertainty: As the interest rate can change, there is a level of uncertainty regarding your monthly repayments. This can make it more challenging to budget and plan your finances.
- Vulnerability to Interest Rate Increases: If interest rates rise, your repayments may increase, potentially placing more financial strain on you.
Fixed Rate Loans:
Fixed rate loans offer stability and predictability as the interest rate is set for a predetermined period, usually between one and five years. During this period, your interest rate and monthly repayments remain the same, regardless of any changes in the market interest rates.
- Pros of Fixed Rate Loans:
- Stability: Fixed rate loans provide certainty as your interest rate remains unchanged for the fixed period, allowing you to plan and budget more accurately.
- Protection against Interest Rate Rises: If interest rates increase, your fixed rate loan will be unaffected, providing a level of protection against rising repayments.
- Cons of Fixed Rate Loans:
- Limited Flexibility: Fixed rate loans often have restrictions on additional repayments, redraw facilities, or offset accounts. This can limit your ability to pay off your loan faster or access funds.
- Potential for Rate Decreases: If market interest rates decrease during the fixed period, you won’t benefit from the rate reduction. You’ll continue paying the fixed rate agreed upon at the beginning of the loan term.
Split Fixed/Variable Loans:
If you can’t decide between the stability of a fixed rate loan and the flexibility of a variable rate loan, a split loan might be an excellent option for you. With a split loan, you divide your loan amount into two portions—one with a fixed interest rate and the other with a variable interest rate.
Offset Account and/or Redraw Facility:
Offset accounts and redraw facilities are additional features that can be offered with both variable and fixed rate loans. These features allow you to potentially save on interest or access extra funds.
Offset Account:
An offset account is a transaction account linked to your mortgage. The funds held in the offset account are offset against your loan balance when calculating interest. This reduces the amount of interest you pay over time.
Redraw Facility:
A redraw facility allows you to access any additional repayments you’ve made on your loan. It provides you with the flexibility to withdraw these extra funds if needed.
Step 9:Pre-Approval & Loan Application
Should you get a Pre-Approval?
A pre-approval is a preliminary indication from a lender that they are willing to approve your loan once you find the right property. It assures you that the bank is likely to lend you a specific amount of money, as long as your financial situation remains stable and you find a suitable property. Pre-approval helps you make stronger offers on properties and negotiate shorter finance terms, enabling you to secure a better deal and purchase your dream home sooner. It’s important to note that a pre-approval is not a guarantee of final loan approval, as it may not undergo a full credit assessment by the bank or lender’s credit department, and it is not assessed by the Lenders Mortgage Insurer (LMI).
Benefits of pre-approval include:
- Clear Budget and Confidence: With pre-approval, you have a clear budget in mind, allowing you to search for properties within your price range. It provides you with confidence when negotiating with sellers, as they know you have the financial capacity to proceed with the purchase.
- Faster Process: Pre-approval accelerates the loan application process once you’ve found a property. Since your financial information has already been assessed, the lender can focus on the specific details of the property rather than starting from scratch.
Found your home?
Once you have found your home, the next step is to apply for a loan to secure the property. The process of applying for a loan on your selected property is crucial as it is the step towards making it yours. You can do this yourself via a lender or through a mortgage broker like Serres Property Finance.
Why Use a Mortgage Broker?
Firstly it’s a free service. That’s right! Mortgage Brokers are paid a commission only when a loan application has settled. Furthermore engaging a mortgage broker can greatly simplify the loan application process and increase your chances of securing the best loan for your needs. Mortgage brokers have access to a wide range of loan products from various lenders, allowing them to compare options and negotiate on your behalf. They act as intermediaries between you and the lenders, helping you navigate the complexities of the mortgage market.
Here are a few reasons why using a mortgage broker can be beneficial:
- Expert Advice: Mortgage brokers are knowledgeable professionals who can provide expert guidance tailored to your financial situation. They can explain the different loan products available, help you understand the terms and conditions, and advise you on the most suitable options.
- Access to Multiple Lenders: Mortgage brokers have access to a broad network of lenders, including major banks, credit unions, and non-traditional lenders. This gives you access to a wide range of loan options, potentially increasing your chances of finding a loan with competitive terms and rates.
- Time and Effort Savings: Instead of individually researching and contacting different lenders, a mortgage broker can streamline the process for you. They handle the paperwork, negotiate with lenders, and assist with the application, saving you time and effort.
How the process works
Step 10:Loan & Property Settlement
Congratulations! You’ve found your dream home and secured a loan. Now comes the exciting stage of property settlement, where the legal transfer of ownership takes place. In this section, we will explore the key aspects of property settlement, including loan settlement, property settlement, and the change of title. Understanding this process will help you navigate the final steps of purchasing your first home with confidence.
Settlement these days occurs on PEXA (Property Exchange Australia). It is an electronic settlement platform that streamlines the coordination of lenders, conveyancers, and other parties involved in property settlements.
Loan Settlement:
Before property settlement can occur, the loan settlement needs to take place. Loan settlement is the process of finalising the loan transaction with your lender. It involves the transfer of funds from the lender to the seller or their representative. This process will be assisted with your mortgage broker (if you are using one) and your conveyancing solicitor.
Property Settlement:
Property settlement is the actual transfer of ownership from the seller to the buyer. It is typically facilitated by your conveyancer or solicitor and involves several important steps:
- Settle on a Date: Agree on a settlement date with the seller or their representative. This is the day when the property officially becomes yours.
- Conduct Final Inspections: Before settlement, you have the right to conduct a final inspection of the property to ensure it is in the same condition as when you made the offer. If any issues arise during the inspection, notify your conveyancer or solicitor to address them with the seller.
- Exchange Legal Documents: Your conveyancer or solicitor will exchange legal documents with the seller’s representative. These documents include the transfer of land and the discharge of mortgage, if applicable.
- Transfer of Funds: On the settlement day, your conveyancer or solicitor will coordinate with the seller’s representative and your lender to transfer the funds required to complete the purchase. This includes the purchase price, any adjustments, and settlement fees.
Change of Title:
After settlement is completed, PEXA will trigger a change of title. The sellers name will be replaced with yours and your lender will be listed as mortgagee on the property.